The regular legislative session recently ended in West Virginia, and once again our Legislature has amended the West Virginia Consumer Credit and Protection Act, one of the primary statutes under which consumers sue creditors, collectors, and others.
For years, the Act stood substantially in its original form since its 1974 passage. From the late 1990s through 2015, consumers filed numerous lawsuits under the Act. Its statute of limitations provision (in some instances stretching as much as 31 years) and its penalty provision (as much as $4,800 per violation) made it a favorite among consumer attorneys. Consumers traditionally have filed suit under the Act in West Virginia far more often than they ever filed suit under the Fair Debt Collection Practices Act, Fair Credit Reporting Act, Telephone Consumer Protection Act, or other federal statutes.
In 2015, the Legislature began amending the Act every year. Starting at that time, the Legislature, among other things:
- Reduced the statute of limitations;
- Reduced the amount of penalties per violation;
- Imposed explicit call volume caps;
- Imposed qualifications on how consumers give notice of being represented by an attorney; and
- Imposed a pre-suit notice requirement.
This year, the Legislature considered several bills aimed at further amending, and in some instances restricting, the Act. Those bills did not pass, but if they had, they would have:
- Made the Act applicable to leases of residential real property (effectively undoing the West Virginia Supreme Court of Appeals’ 2017 decision in Copper Beech Townhome Communities Twenty-Six, LLC);
- Reduced the penalties available under the Act to only one penalty per lawsuit;
- Imposed a cap on statutory penalties in class actions of $500,000 or 1 percent of the defendant’s net worth; and
- Required a class representative to demonstrate that she or he incurred $5,000 in “ascertainable loss” of money or property before a class could be certified.
While those bills did not pass, one significant bill did. The bill was signed into law by Governor Justice on March 29, 2021, and its provisions become effective on June 16, 2021. It changes consumer litigation in three important ways.
1. Guidance on Awarding Attorney’s Fees
The Legislature has brought clarity and guidance to trial courts deciding whether to award a party attorney’s fees and expenses in an action brought under the Act. Prior to the new law, § 46A-5-104 of the Act merely told trial courts they could award “reasonable” attorney’s fees and expenses to a consumer and could award the same to a defendant if the action was brought in bad faith and for the purposes of harassment. The new law still provides that trial courts may award “reasonable” attorney’s fees to a consumer and also to a defendant if the action was brought in bad faith and for the purposes of harassment. But, the new law requires trial courts to conduct a “lodestar” analysis and examine the following factors in determining the amount of fees and expenses to award:
2. Revisions to the Pre-Suit Notice Requirement
- The time and labor required;
- The novelty and difficulty of the questions;
- The skill requisite to perform the legal service properly;
- Preclusion of other employment by the attorney due to acceptance of the case;
- The customary fee;
- Whether the fee is fixed or contingent;
- Time limitations imposed by the client or the circumstances;
- The amount involved and the amount of the judgment and any nonmonetary relief obtained;
- The experience, reputation, and ability of the attorneys;
- The undesirability of the case;
- The nature and length of the professional relationship with the client; and
- Awards in similar cases.
Prior to the new law, the Act included a provision in § 46A-5-108 that required a consumer to give a pre-suit notice to a defendant and give that defendant the opportunity to make a cure offer. If the cure offer wasn’t accepted and the consumer received less than the cure offer at trial, the defendant would not be liable for the consumer’s attorney’s fees and expenses. That provision applied to actions brought under parts, but not all, of the Act. A separate pre-suit notice requirement existed in § 46A-6-106 for consumers who brought actions against sellers and lessors under Article 6 of the Act alleging unfair or deceptive acts or practices ("UDAP") in trade or commerce.
The new law removes the separate pre-suit notice requirement in § 46A-6-106 and expands § 46A-5-108 to govern pre-suit notices under Article 6 as well as other parts of the Act. The new law provides essentially the same procedures for pre-suit notices, changing some wording to make clear that a consumer may not bring any action under the Act unless she or he complies with the pre-suit notice provisions.
There is one seemingly significant departure from the prior version of the law. The prior version of § 46A-5-108 could be read to allow a defendant to introduce into evidence at trial the fact that it provided a cure offer to the consumer. In essence, the defendant could show the jury that it tried to resolve the dispute before the action even started. The new law appears to remove that opportunity. Instead, it now provides that a cure offer is not admissible in any proceeding except that it may be introduced in a proceeding before the court (not the jury) to determine an award of attorney’s fees and expenses.
3. Creation of New Provisions on Offers to Settle and Frivolous Claims and Defenses
There is a lot to unpack here. The new law creates a new section of the Act, § 46A-5-109, and that section addresses two issues: offers to settle and motions to determine a claim or defense to be frivolous.
In the first part (offers to settle), the new law supplements the procedure in Rule 68 of the West Virginia Rules of Civil Procedure that allows a party to make an offer of judgment. Our experience is that Rule 68 offers of judgment have been of limited usefulness as they require a party to agree that a judgment can be taken against it for a certain amount. That is a disincentive as most creditors and collectors would be required to report a judgment being entered against them when they apply for insurance, apply to renew their current licenses, or apply for new ones. Further, Rule 68 does not give a creditor or collector much incentive to make an offer of judgment. A party making an offer of judgment that is not accepted may not be liable for the other party’s costs, but it’s unclear if that includes attorney’s fees.
The new law addresses both of those issues and more. Among other things, it provides the following:
- A party may make an offer under this section of the Act, which offer is effective if it offers to enter into an agreement to dismiss a claim (it may offer to allow judgment to be taken, but that is not required);
- A rejected offer can allow the offering party to avoid paying the other party’s attorney’s fees and expenses (assuming the other criteria in the section are met);
- An offering party may be awarded attorney’s fees and expenses if it shows the other party acted without substantial justification or without good faith in rejecting the offer;
- An offer to settle can relate to all or less than all of the claims;
- An offer can include attorney’s fees but is not required to;
- An offer is open for 14 days unless rejected; and
- The offering party may make up to two amended offers.
In addition to the above, the new law provides a large window in which parties may make offers to settle: at any time more than 30 days after the service of the summons and complaint and not less than 30 days before trial.
In the second part (motions to determine a claim or defense to be frivolous), the new law allows either party to move the court to determine a claim or defense asserted by the opposing party is frivolous. The court is required to hold a hearing and may award damages, including attorney’s fees and expenses, against the party presenting the frivolous claim or defense. In determining whether “a claim, defense, or other position” is frivolous, the court should consider whether that claim, defense, or other position:
- Lacks substantial justification;
- Is not made in good faith;
- Is made with malice or a wrongful purpose;
- Has “a complete absence of any justiciable issue of law or fact that it could not be reasonably believed that a court would accept it”; or
- Was interposed for delay or harassment.
West Virginia already has a provision in Rule 11 of the West Virginia Rules of Civil Procedure that permits sanctions to be awarded for actions taken without a good faith basis. This new provision of the Act seems to supplement Rule 11. An interesting point to note is that, while § 46A-5-109 is titled, in part, “damages for frivolous claims or defenses,” its provisions apply not only to claims and defenses but also to “other positions.” It is not yet clear what actions will be deemed to be “other positions,” and it likely will be some time before there are any reported decisions that clarify this.
Our Legislature again has amended the Act. This year’s amendments appear to clarify calculating an award of attorney’s fees and foster attempts to resolve lawsuits, both before they are filed and, if not then, before trial. The imposition of the lodestar analysis brings the Act on equal footing with other areas of West Virginia law where a lodestar analysis is conducted. The changes to the pre-suit notice requirement in § 46A-5-108 may continue to resolve some claims before suit is filed. And, if suit is filed, the new offer of settlement provisions incentivize parties to attempt to resolve claims during suit. If they don’t resolve them, the new frivolous claims and defenses provisions may penalize them for failing to do so.